Durham-based mining and bulk material logistics firm Hargreaves Services plc remains confident about its future despite seeing turnover and profit plummet in “unprecedented” market challenges.
Hit by the well-documented turmoil in both the coal and coke markets, the company saw revenues for the six months ended November 30, 2014, drop 23.7% compared to the same period in 2013, going from £460.5m to £351.2m. Underlying operating profit, meanwhile, dropped 29.1%, from £30.9m to £21.9m.
The results follow a significant decrease in the coal price and a downturn in the wider market, which prompted the Hargreaves board to look again at strategic options and take steps to streamline operations through a simplification programme.
So far this has included the sale of Imperial Tankers to Suttons Transport Group, generating proceeds of £26.9m and a profit on disposal of £16.8m, as well as the closure of a non-core tyre crumbling business and the Mir Trade joint venture.
Hargreaves, which likewise closed its Monckton coke works in Yorkshire in December, expects the programme to generate net cash of more £40m by May 31, 2016.
The company also boasts a strong balance sheet, with net assets on November 30 of £152.2m, or around £4.63 per share.
And though prices have fallen further since its last trading update in December, an interim report accompanying the new results expressed confidence that coal would have an important role to play in the UK for many years to come.
To weather market challenges in the meantime, Hargreaves would reduce production and focus on sites with the lowest costs and highest yields of speciality coals.
It will also continue to concentrate on the potential to deliver restoration services, to generate value from its property and renewable portfolios and grow its industry services operations into the steel sector and international markets, further reducing its dependence on the UK power generation sector.
Further restructuring and cost reduction are also on the cards through the likes of a full integration of its Products and Energy & Commodities divisions.
The interim divided increased from 8.8p per share to 10p per share, reflecting the board’s confidence in continuing overall profit and cash generation.
Hargreaves chairman Tim Ross said: “The market conditions we are currently experiencing are unprecedented and very challenging.
“The group simplification programme and focus on reducing debt ensures that the group is well placed to weather the current difficult trading conditions for such time as they persist.
“Although there are challenging times to face in the coming financial year, the group is expected to continue to be profitable and to generate meaningful surplus cash.
“Reflecting the group’s inherent strength and solid financial position, the board has the confidence to increase the interim dividend in line with prior guidance.
“Although we are unable to control factors such as coal price and coal demand, the management team is proactively taking all the sensible steps and measures to manage current market conditions whilst leaving the group well placed to benefit when the market improves.”